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Sunday, February 5, 2012

Capitalism and Austerity

In Capitalism, there are suppose to be winners and losers, in a sort of evolutionary game of business.   In business if a company can't hold up it's end of an obligation, it defaults, and the lender takes the hit as well as the borrower getting a black eye on credit worthiness.

That is how it used to work.  As it is well known now, most larger institutions are allowed to avoid taking losses, through changing of accounting rules in place since the great depression. (mark to market).   Also by quasi government institutions setting up special funds and funding. (Federal Reserve Bank).

What we are seeing in Europe is similar, but since there version of Federal Reserve bank and their governments can't just print money at will, they are shifting in the other direction.  Asking debtor nations to cut back.   What this really is the lenders wanting to avoid taking hits from the borrows inability to pay back.

So instead of taking the hit, they want everyone to take the hit...for decades...or however long it takes to get their payment back.

Below is great video to explain all of this.  I don't agree with every sentence here, but 90% is on the mark.  Well worth the watch.

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